Monday, June 15, 2009

Declining Divorce Rates Wreak Havoc on Extended Stay Hotels

Privately held group Extended Stay Hotels, which was acquired in June 2007 by NJ-based Lightstone Group LLC for an ungodly amount of money of which $7.4 billion was funded through debt (and the bulk of it was apparently securitized), has thrown in the towel and under the wise tutelage of Lazard and Harvey Miller (who is poised to become the best paid lawyer in the history of the world) - a dynamic duo putting bondholders in their place ever since Judge Peck decided to sell Lehman's brokerage group to Barclays for $0.69, dropped off its first day motions at 1 Bowling Green.

Extended Stay, whose various lines include favorites of soon-to-be-divorcees such as Homestead, Extended Stay (Deluxe and America), CrossLand and StudioPlus, will likely not find solace in President Obama's too big to fail designation, and as such will have a bankruptcy that will be much lengthier and painful (to both itself and its peers) than the Chrysler/GM 363 sale juggernaut. One peek at the company's org chart should bring bloody tears to the eyes of any bankruptcy analyst who will have to summarize the various interco cash flow sweeps on just one page for his/her ADHD-afflicted superiors. More on the org chart, in the first day declaration below.

Curiously, Lightstone (and General Growth, Cohen and Steers, Ackman and Merrill's REIT team) have yet to issue a press release how this bankruptcy further solidifies their green shoot theory and how all CRE properties are massively undervalued and how bankruptcy is just a way to clean up legacy balance sheets, etc. Amusingly, as Joseph Teichman, Extended Stay's GC described the company's business model "it is a hybrid between a hotel and an apartment." Brilliant - in other words it has all the worst qualities of a hotel REIT and an apartment REIT. Nothing like a deluge of over 680 properties soon to be auctioned off, flooding an already miserable CRE landscape. "Typical guests include government and business travelers, people on temporary work assignments [TD:up to but not over 1 hour] or training programs, individuals relocating or purchasing a home and individuals with other short-term housing needs.

Furthermore, as Extended Stay employs roughly 10,000 people, of whom at least half will now get the boot, the birth-death adjustment for June will have to be even more stupendously ridiculous to make it go with the program that this is the month when the recession ended and everybody is now employed.

One particular piece from the declaration is highly notable, as it cuts through all the green shoot fluff and propaganda and describes succinctly and to the point, the pain that every single comparable company is going though currently.

Most amusingly, the company's CEO, President, Chairman (any function missed here?) is David Lichtenstein (presumably unrelated to Steel Partners' recently illegally inebriated Warren) - his bio in the filing, among other things, lists that he is a member of NAREIT. Hold on, weren't these the same jokers claiming the commercial real estate is poised to raise over half a trillion dollars by 2013? Seems humor is a prevalent theme with NAREIT members - David obviously exudes it, having named his real estate company very subtly as a memento of his own deal making acumen and value investing prowess (Lichtenstein - Lightstone... get it?).

Anyway, for this and much more juicy amusement (as funny as a Merrill REIT report, just, you know, the opposite, i.e. factual), I present Teichman's entire Declaration below. Great read.

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